INSURANCE costs are one of our biggest household expenses, and many people fork out several thousands of dollars each year in the hope that they won't actually need it.

When you think about how many types of insurance there are, it's no wonder the budget has to stretch to meet all those premiums for things such as home and contents, cars, life, building, income, pets, travel, mortgage, disability and health.

But there are ways to reduce your insurance costs - without reducing your level of cover.

After all, there's no point in having insurance if it isn't going to pay out when you need it.

PROTECTION FROM WHAT?

Despite all the different types of insurance, the only thing you are really insuring yourself against is "financial hardship".

If you can't afford to pay, replace or repair something from your own pocket then insurance will provide the money to do that, RateCity chief executive Alex Parsons says. The trade-off, however, is that you may be paying for something that you never need.

The first step on the path to reducing your insurance costs is to drag out all those policies and decide how much you need.

"As a bare minimum, make sure you are covered for any events that you may consider somewhat likely to occur in the foreseeable future, but make sure you use your head rather than acting on fear alone,'' Parsons says. "This will help you find a policy that fits within budget and covers the most important things."

COMPARE POLICIES

"If you haven't compared your insurance in years and have got in to the habit of just paying the renewals when they arrive, chances are you are paying too much,'' Parsons says.

"Personal circumstances change, new providers come on the market and it is easy to find yourself with a less than ideal policy."

Woolworths Insurance executive Chris Cramond says some policies will include extras that you may not need.

"Make sure you are paying only for benefits that you may use,'' he says. "By stripping away a lot of extras, you can reduce your premium. Some options may not be relevant to you."

LOYALTY DISCOUNTS

Loyalty and multi-policy discounts are another way to cut insurance costs.

"If you have more than one policy with an insurer, such as for two cars, or more than one type of insurance, such as home and car, insurers may offer discounts,'' Cramond says.

"Loyalty discounts are also offered for customers who have stayed with the same insurer for a long period of time."

However, even these type of loyalty discounts may not be worthwhile if the total cost is still too high, RateCity's Parsons says.

"Loyalty discounts can appear to be a great deal but do not let them prevent you from regularly shopping around and comparing deals.

"A 10 per cent discount for sticking with your existing insurer may seem like a great deal but you may actually find you can save 20 per cent or even more without sacrificing coverage by switching to a different provider."

CASH FLOW

One of the most straight forward ways to cut your insurance costs is to increase the amount of excess that you agree to contribute if you make a claim. This will lower the premium costs, but you still need to consider if you have the ability to pay the larger excess if you make a claim, insurance broker OAMPS says.

"You can look at increasing your excess which may decrease your premium, but be careful not to increase your excess to a point that you can't afford to pay it should you need to make a claim,'' OAMPS national manager Joanne Parnell says.

How often you pay your premium can also help with the affordability, Parnell says.

Breaking the annual amount down in to monthly instalments can ease the household cashflow and avoid those big lumpy bills that all seem to come at once.

"Remember, that it's better to have some cover rather than no cover at all," she says.

"If you can't afford the premium then chances are you aren't likely to be able to afford to replace your assets."

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